Fiscal bailout: Time for states to recalibrate
June 30, 2015 Opinion
BY Oseloka H. Obaze



In life and statecraft, there comes a time when delusion
meets with reality. And so it is now, for twenty-eight
Nigerian States and their elected leaders. The fiscal
cliff confronting states that cannot meet their basic
fiduciary obligations, including payment of salaries, is
hardly surprising. This crisis is the manifestation of
years of fiscal profligacy, malignant imprudence,
malfeasance, disregard for proper planning and an
aversion by elected officials to the intricacies of
adaptive leadership and good governance. But, the crux
of the matter is the lack of vision, indiscipline and utter
disregard for results-based budgeting that aims at
efficiency and thus compels short, medium and long
term planning.

It is unconscionable that seventy-five percent of
Nigerian States that collectively earned over N2.8
trillion in internally generated revenue (IGR) in the past
five years, and collected regular monthly allocations
from the Federation Account, cannot pay salaries. In the
2013 financial year, the 36 states collected N7.9 trillion,
and N7.75 trillion in 2014. What is mindboggling is how
States that generated some N41.6 trillion between 2011
and 2014 financial years can become so cash-
strapped. Read poor fiscal management. The raging
debate is whether the cash-strapped States should get a
bailout from the federal government and the nature of
the bailout. The reality is that recklessness of any
nature, fiscal or otherwise, should not be rewarded.
Mistakes and accidents can be overlooked, not fiscal
profligacy involving public funds. For too long, our
elected leaders have operated on the assumption that
they are not accountable to the people, and that they
will not be evaluated by the people.

At election times, they use state funds to finagle their
way back into office. Now, it is crunch time and the
evaluation will be done on the moral basis of how well
they managed their state coffers; and how well they
have planned for the proverbial rainy day. Still, our
present circumstances compel the Nigerian attentive
public to speak truth to power, knowing now, as it were,
that politics is too important to be left to politicians. So,
should the states trapped by fiscal imprudence and
insolvency be bailed out? The answer is not
immediately!

Let them sweat it out and figure out how to recalibrate.
Should the affected states decide to take interim
bridging loans to fill the existing fiscal gaps, they will
hopefully manage the resources frugally. And, should
one or two states shut down due to insolvency, so be it.
Such developments will make it clear to all that elected
leaders who fail to provide more accountable
government will be swept aside by their own failings. In
the end, any bailout must apply equitably to all 36
states and with stringent conditionalities. States
needing the bailout can draw down on the funds and
those who don’t, can hold theirs in reserve. The reality
is that the present fiscal crisis was not entirely
unforeseen. When the Sovereign Wealth Fund (SWF)
was proposed some years back as a stopgap measure
for times like these, many state governors demurred. I
recall in particular, former Gov. Rotimi Amaechi’s
trenchant criticism of the SWF and his blunt refusal to
support the establishment of the fund. Granted that
some who are now governors were then outside the
governance orbit; most already had political aspirations
and were members of Nigeria’s attentive public. They
should have spoken up.

The genesis of the present crisis requires no hard
scrabble analysis to decipher. A conjunction of
circumstances, namely, misplaced priorities, poor fiscal
planning, preference for envelope budgeting,
dysfunctional tax regimes, grandiose ego projects,
bloated governance personnel, states over-reliance on
appropriated local government funds and finally,
crashing of global oil prices, combined to get the states
into their present quandary.

Today, the indebted states collectively owe N658 billion.
President Muhammadu Buhari did well in hearing out
the governors who are seeking a bailout. His expressed
willingness to bail them out, subject to the advice of his
Economic Team, is commendable. His advice that they
should continue sorting out their challenges, including
through the recovery of funds stolen by their
predecessors, is also instructive. But, there is more.
Conventional wisdom advises instant belt-tightening;
and cutting one’s coat according to one’s cloth. If
addressing the prevailing challenges warrant further
borrowing and bailouts, then fiscal responsibility will
compel corollary adjustments through efficient cost-
cutting. One is hard-pressed to hear the affected states
proposing such remedial measures.

The proposal by the governors to restructure their debts
by liquidating their longer tenured bonds via Irrevocable
Standing Payment Order (ISOP), while seemingly
salutary, amounts also to egregious passing of the buck
to their successors. Paradoxically, by this request, the
governors seek remedial measures via the very route
they are unwilling to walk with long term and cost-
effective fiscal planning that would place their
successors in good stead.
Responsibility for change rests with the citizens, who
must now insist that the twenty-eight cash-strapped
States borrow a leaf from the eight solvent states and
draw comparative lessons from what the solvent states
are doing right.
It is noteworthy that my home state, Anambra, is not one of the insolvent states. Her secure position is not unconnected to past and lingering pains
of the non-payment of salaries experience, which the
state went through during Mabadinuju era and the
commitment by succeeding governors that never again
will the Anambra people undergo such fiscal trauma. It
is time to think the unthinkable. There are other
compelling fiscal issues that the three tiers of
government must begin to grapple with under President
Buhari’s leadership, and in light of our dwindling oil
revenue.

First, we must trim the cost of governance drastically at
all levels, thus making the public service nimble and
efficient. Second, we must take hardheaded decisions
that will allow the States and Local Governments to
receive more than the Federal Government in federal
revenue allocations. The present 52-26-22 percent ratio
is inequitable. Third, the States must commit to Local
Government autonomy, despite the prevailing argument
that the local government is not a federating unit.
Fourth, the public and private sectors must share the
responsibility for wealth and job creation.
Finally, the present fiscal crisis which coincides
fortuitously with the change in administration should
compel honest dialogue at all levels. Inevitably, the
States will negotiate from a point of weakness. While
they need not grovel, their parlous circumstances ought
to be sufficiently humbling to compel an honest and
introspective evaluation, recalibration and refocus on
good governance processes and related actualities. On
this, the nation must act in concert.



• Obaze is a public policy adviser and the immediate-
past Secretary to the Anambra State Government.




CC: lalasticlala

First

Grammar everywhere.

Too long